Motorcade Company has three service departments (S1, S2, and S3) and two product

Question

Motorcade Company has three service departments (S1, S2, and S3) and two production departments (P1 and P2). The following data relate to Motorcade's allocation of service department costs:

        Budgeted Costs    Nbr of Employees

S1    $3,000,000                  75

S2    2,660,000                   50

S3    1,000,000                  25

P1                                    150

P2                                    225

Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs

Calculate the total service department cost allocated to production department P1

Explanation / Answer

Service Dept Cost S1 * (150/(150+225)) + Service Dept Cost S2 * (150/(150+225))+ Service Dept S3 *(150/(150+225))

Total budget=($3,000,000+ $ 2.660,000+$1,000,000)=$ 6,660,000

Total employees= (150+225)=375

P1=(6,660,000/375) *150=$2,664,000

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